Tuesday, March 20, 2007

Calls of Note Part 4

- ThinkEquity's Eric Ross comments on Sandisk (NASDAQ:SNDK) saying NAND prices have fallen sharply, and they fear there may be difficult news in the near term. ASPs have plagued a larger portion of the quarter than many investors expect. In addition, any improvement in NAND pricing may shift capacity back to NAND, muting any recovery. The firm does not believe we have reached the bottom quite yet.

Prices have fallen 35%+ Q/Q in the March quarter alone. Every company has pre-announced and said that pricing is falling sharply: Hynix, MU, SanDisk, and Samsung all announced sharply falling prices. Prices continue to fall, albeit not at the same rate. Some sources phrased this as, "prices bottomed out." But, when the firm asked for a more-clear definition, they said they intended to say, "declines have bottomed." Firm believes some investors intended the former. Most supply chain sources expect prices to continue to fall for at least another month or two, and likely to some degree (albeit slowing) until the end of the year.

Investors are looking to demand to pull the industry out of the slump-NAND Flash drives for PCs and cell phone handset volumes. The firm agrees these will be drivers, but they fear there may be difficult news beforehand.

Many dual DRAM/NAND makers have moved back toward DRAM. Samsung and Hynix have allocated larger portions of capacity to DRAM as NAND prices plummeted and DRAM was more profitable. Now, neither is very good. They are likely to shift back if NAND pricing begins to improve, muting any real recovery for a quarter. Mr. Ross does not expect this to occur until the summer at the earliest. It is possible we will see some misses by NAND makers in the March quarter.

The firm is cutting their ests on SNDK: 1QCY07 from $840.0 million to $788.0 million; CY07 from $4.032 billion to $3.928 billion; 1QCY07 from $0.18 to $0.08; CY07 from $1.02 to $0.84; Reits Accumulate and $45 tgt.

Notablecalls: NAND's a tough business to be in. I continue to see no reason to own SNDK around current levels.